KResearch expects that the Monetary Policy Committee (MPC) will resolve to keep its policy rate steady at 0.50 percent during the upcoming meeting because the Thai economy has bounced back faster than previously anticipated. In 3Q20, Thailand's GDP shrank 6.4 percent YoY, bettering the 12.1 percent contraction reported for 2Q20. Seasonally-adjusted GDP resumed growth of 6.5 percent QoQ, suggesting that the Thai economy has bottomed out of the coronavirus (COVID-19) crisis. It is reasonable, therefore, to assess that the MPC will not cut its policy rate at the upcoming meeting, but accelerate its efforts to implement other non-interest measures, such as financial and loan measures to help bolster liquidity for cash-strapped businesses and support operational mechanisms of fiscal stimulus measures.
KResearch, however, assesses that the rapid appreciation of the Baht since the beginning of November 2020 is one of the factors that the MPC will prioritize at the upcoming meeting because it could derail the Thai economic recovery. Nevertheless, we are of the view that non-interest measures can address issues related to the Baht's appreciation more effectively. Meanwhile, signs from the latest analyst meeting (October 4, 2020) show that the Bank of Thailand (BOT) is aware of the inevitable appreciation of the Baht ahead and in the process of preparing many measures to strike a balance in capital movements. It is expected that the BOT will implement those measures concurrently with its attempts to maintain the Baht's stability and study the appropriateness of stringent measures to supervise the Thai currency in the future.
We at KResearch assess that the Thai economy will likely experience a number of downside risks ahead, and the MPC may ease its monetary policy if needed. Although the MPC can maintain its policy rate at 0.50 percent over the next few months, it will be quite challenging for the MPC to ensure steady economic recovery as it hinges on many factors, such as the COVID-19 pandemic at home and abroad, domestic political situation, and effectiveness and adequacy of economic measures that have already been implemented. Nevertheless, the MPC may need to undertake monetary easing if those factors become so volatile that the Thai economic recovery is derailed.